Where we are: Nasdaq 100 futures are trading around 19,350, down roughly 0.6% pre-market, continuing the slide from yesterday’s close. The index is testing the lower end of its recent range, as higher yields and ongoing concerns about the sustainability of the AI-driven rally weigh on sentiment. This level is notably below the prior NY close, suggesting continued selling pressure as we approach the US open.
What’s driving it: The primary driver is the continued rise in US Treasury yields, with the 10-year at 4.59% and the 2-year at 4.09%, reflecting persistent inflation concerns. Real yields are also climbing (10Y TIPS at 2.1%), which is a headwind for risk assets generally and the Nasdaq 100 in particular. While the 10-year breakeven rate is slightly lower, the overall yield environment is putting pressure on growth stocks, especially those reliant on future earnings projections. The AI theme, while still dominant, is facing scrutiny, as some structural questions are being raised about its sustainability, contributing to the current pullback.
- The 2s10s spread has widened to 0.54%, indicating a slight steepening of the yield curve and suggesting some increased confidence in economic growth, though the overall level remains relatively flat and keeps recession risk in focus.
- Speculator positioning in Nasdaq 100 futures is crowded short (-15,985 contracts), creating a squeeze risk if positive news emerges.
- WTI crude is trading above $101, reinforcing inflationary concerns and likely contributing to upward pressure on yields.
NY session focus: Traders should watch the 10:00 ET release of Pending Home Sales data, though the medium-impact nature of this release suggests the focus will remain on yields and broader risk sentiment. Key levels to watch are 19,200 on the downside and 19,500 on the upside. The trade that has been working is shorting AI infrastructure names, but this is becoming a crowded trade. The trade at risk is holding onto long positions in growth stocks, especially if yields continue to rise. The pain trade for the Nasdaq 100 would be a surprise dovish shift in Fed rhetoric or a significant pullback in yields, triggering a short squeeze and a rapid rebound.